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The Bureau of Consumer Financial Protection (“CFPB”) and Conduent Education Services, LLC (“CES”), a student loan servicing company formerly operating as ACS Education Services, reached a $3.9 million deal for the company’s alleged failure to provide accurate balances on more than 200,000 student loans. 

The CFPB found that CES engaged in unfair practices that violated the Consumer Financial Protection Act of 2010 by failing to adjust in a timely manner principal balances of student loans made under the Federal Family Education Loan Program. CES did not make required adjustments to student loans to account for common circumstances such as deferment, forbearance, or the borrowers’ entrance into an income-based repayment plan. 

While CES could automatically process principal balance adjustments for most loans, certain adjustments apparently had to be processed manually by a loan processor. Those loans requiring manual processing were placed into queues for later processing and, in the interim, the affected loan remained unadjusted with potentially incorrect principal balances. Over the years, the queues grew to over 200,000 loans awaiting adjustment. As a result, borrowers paid off loans with inaccurate balances, and other borrowers were unable to consolidate their loans while they waited, sometimes for months, for CES to adjust their principal balances. 

The consent order requires CES to make adjustments to the principal balances of relevant loans or otherwise make restitution to borrowers or any third parties that paid off such loans. CES must also pay a $3.9 million fine. CES is in the process of winding down its business.

On May 7, Sen. Ted Cruz (R-Tex.) announced that he is reintroducing a bill titled the “Repeal CFPB Act” which would eliminate the Consumer Financial Protection Bureau. This represents the third time that Cruz has attempted to introduce a bill in the Senate that would eliminate the CFPB. In 2015 and 2017 the efforts were not successful.

Joining Cruz in introducing the bill are Sens. Mike Lee (R-Utah), Jim Inhofe (R-Okla.), Ben Sasse (R-Neb.), Mike Rounds (R-S.D.), Marsha Blackburn (R-Tenn.), and Rand Paul (R-Ky.).

The bill would repeal the Consumer Financial Protection Act of 2010, which would eliminate the CFPB and any rulings passed by the agency. In a statement, Cruz stated that “[t]here has never been a greater farce and waste of government resources than the Consumer Financial Protection Bureau.  … Make no mistake, it does little to protect consumers and was created during the Obama administration to enforce burdensome regulations which have stunted economic growth and negatively impacted small businesses and consumers.”

Cruz’s co-signer, Inhofe, also issued a statement stating, “Obama’s administration was all about expanding the size and scope of federal bureaucracy. For almost eight years, the CFPB has held far too much power with virtually no Congressional oversight. I’ve seen how Oklahoma banks are being forced to spend more and more of their time and resources on complying with federal government mandates, and less on their customers—driving up costs for families, small businesses, farmers and ranchers. Eliminating the CFPB is the next step in cutting bureaucratic red-tape for hard-working Americans.”

On May 6, a Ninth Circuit panel held that the Consumer Financial Protection Bureau’s single-director structure does not violate the Constitution, rejecting a California law firm’s argument that it should not be required to comply with a civil investigative demand issued by the agency.

The CFPB issued the CID to Seila Law as part of its investigation of whether the firm violated the Telemarketing Sales Rule in the course of providing debt-relief services to consumers.

Seila Law refused to comply with the CID, however, arguing that the CFPB’s single-director structure violates the Constitution and thus renders all of the agency’s activities unlawful. Specifically, Siela Law argued that the CFPB’s structure violates the separation-of-powers doctrine because the agency is headed by a single director who exercises substantial executive powers but can be removed by the President only for cause.

The Ninth Circuit panel rejected that argument. The panel held that the Supreme Court’s decisions in Humphrey’s Executor v. United States and Morrison v. Olson were controlling, and that those decisions indicate that the CFPB’s single-director, for-cause removal structure does not impede the President’s ability to perform his constitutional duties.

According to the panel, Humphrey’s Executor and Morrison dictate that Congress may insulate agencies that exercise quasi-legislative and quasi-judicial powers from the President’s control, even if those agencies also exercise substantial executive powers.

In upholding the CFPB’s single-director structure, the Ninth Circuit panel followed the D.C. Circuit’s en banc decision in PHH Corp. v. Consumer Financial Protection Bureau. But, as those that follow this blog know, the D.C. Circuit’s PHH Corp. decision drew a sharp dissent from then-Judge and now-Justice Brett Kavanaugh, who argued that the CFPB’s structure presents “an overwhelming case of unconstitutionality.”

Despite the Ninth Circuit panel’s decision, the targets of CFPB investigations should still consider challenging the constitutionality of the CFPB’s single-director structure. As Justice Kavanaugh’s PHH Corp. dissent confirms, there are strong arguments that the CFPB’s single-director structure violates the Constitution, and many judges (and some justices) who will embrace those arguments.

The full text of the Ninth Circuit’s decision is available here.

The Consumer Financial Protection Bureau (CFPB) released on May 7 a 538-page Notice of Proposed Rulemaking (the Rule) that would update the Fair Debt Collection Practices Act (FDCPA). The Rule would be the first major update to the FDCPA since its enactment in 1977 and gives much-needed clarification on the bounds of federally-regulated activities of “debt collectors,” as that term is defined in the FDCPA, particularly for communication by voicemail, email, and texts. It is important to remember that the Rule is only a proposal, and it is already drawing fire from consumer advocates. Once the Rule is published in the Federal Register, it will be open for public comment for 90 days, after which the CFPB will either issue a final rule or issue another proposed rule.  

Below we analyze 15 key provisions of the Rule. 

Download the complete article here

Troutman Sanders will be hosting a webinar to discuss the impact of the Rule on Wednesday, May 15 from 3:00 – 4:00 p.m. EST. 

On May 2, the Consumer Financial Protection Bureau issued a Notice of Proposed Rulemaking that proposes to amend disclosure requirements under the Home Mortgage Disclosure Act. Currently, the HMDA requires financial institutions to disclose loan-level information about mortgages to reporting agencies in order to assist public officials in policy-making decisions, among other things. The CFPB processes this data and makes it available to the public. The CFPB also issued an Advance Notice of Proposed Rulemaking (“NPRM”) seeking information related to the costs and benefits of reporting certain data points under the HMDA.

The CFPB’s NPRM proposes changes that are likely welcome relief for smaller community banks and credit unions. The main proposal provides two alternatives, both of which would raise the threshold requirement for financial institutions that would otherwise be required to provide HMDA data to reporting agencies. Specifically, institutions that originate fewer than 50 closed-end mortgage loans or alternatively, fewer than 100 closed-end mortgage loans in either of the two preceding calendar years, would not have to report such data as of January 1, 2020. For open-end lines of credit, the NPRM would extend for another two years the current temporary coverage threshold of 500 open-end lines of credit. Once that temporary extension expires, the NPRM would set the open-end threshold permanently at 200 open-end lines of credit.

The public is invited to submit written comments on these proposed regulation changes.

This morning the CFPB released a new proposed rule that would govern debt collection. Continuing a process begun in 2013, the rule would mark the first major update to the FDCPA in more than 40 years. A common theme throughout the process of developing the rule has been a concentration on updating the FDCPA to accommodate modern technology, including use of both human-initiated and computer-initiated debt collection telephone calls as well as other avenues of communication with consumers, including the use of emails and text messages.

You can access the proposed debt collection rule here: https://files.consumerfinance.gov/f/documents/cfpb_debt-collection-NPRM.pdf

You can access the Fast Facts summary of the proposed rule here: https://files.consumerfinance.gov/f/documents/cfpb_debt-collection-fast-facts.pdf

You can access the flowchart on the proposed rule’s electronic disclosure options here: https://files.consumerfinance.gov/f/documents/cfpb_debt-collection-electronic-disclosure-flowchart.pdf

The agency is proposing these changes and opening the proposal for notice and comment from the public, including industry stake holders. The current deadline to provide comments is August 19, 2019.

The CFPB is hosting a Debt Collection Town Hall in Philadelphia, beginning at noon tomorrow, May 8th. Information on the live stream of that event is available here.

We will be providing a more thorough analysis of the new rule shortly.

Troutman Sanders will also be hosting a webinar to discuss the impact of the new rule on Wednesday, May 15th from 3:00 – 4:00 pm ET.

You can register for the webinar here.

This week the Consumer Financial Protection Bureau announced a policy change for the agency’s Civil Investigative Demands, or “CIDs.”

The CFPB is authorized by statute to issue CIDs. These updated policy changes address what may be included in those CIDs, specifically in the “notification of purpose” section. The CFPB has stated that going forward CIDs will contain:

  • More information about the provisions of law that might have been violated;
  • More information about the business activities that are subject to CFPB authority; and
  • Whether determining the extent of the CFPB’s authority over the business activities is one of the “significant” purposes of the investigation.

The “notification of purpose” section is the subject of recent court decisions, and the CFPB’s announcement states that these changes are also in response to comments the agency received from several Requests for Information the CFPB issued in 2018, seeking feedback about its enforcement operations. Many industry groups and businesses expressed a need for greater information and transparency in the CID process, which can be confusing and challenging for businesses to navigate. This policy change appears to be a step toward addressing those concerns.

Troutman Sanders routinely assists clients in responding to CIDs, from both state and federal regulators. We will continue to monitor the CFPB’s changes to the CID and investigative process in general.

On March 1, the Consumer Financial Protection Bureau released a report concerning mortgages made to members of the U.S. armed forces and veterans purchasing a first home.  It is part of a series of quarterly reports the CFPB will issue focusing on consumer credit trends.  This Quarterly Consumer Credit Trends report highlights trends among first-time homebuying servicemembers from 2006 through 2016 and compares them with trends of first-time homebuying non-servicemembers.  Some of the key trends found by the CFPB are the following:

  • Servicemembers increased their reliance on U.S. Department of Veterans Affairs guaranteed home loans by 33% between 2007 and 2009, equaling 63% of servicemembers using VA mortgages by 2009.  While the report identified a comparable trend of non-servicemembers increasing their reliance on government-sponsored loans going into 2009, non-servicemembers decreased their reliance on government-sponsored loans thereafter.  Servicemember reliance on VA mortgages continued to increase and was at 78% as of 2016.
  • The increased use of VA mortgages by servicemembers reflected a larger decrease in use of conventional loan products between the years of 2006 and 2009 by all consumers, both servicemember and non-servicemember.  At their peak during the years of 2006 through 2009, conventional mortgages served 60% of servicemembers and 90% of non-servicemembers.  As of 2016, conventional loans only served 13% of servicemembers.  Non-servicemembers’ use of conventional mortgages dropped to 41% as of 2009 but increased to 60% by 2016.
  • The median VA mortgage amount among servicemembers “increased in nominal dollars from $156,000 in 2006 to $212,000 in 2016.”  This figure closely follows a similar increase in the median amount that non-servicemembers have borrowed using conventional mortgages.  The report notes, however, that the median loan amount of Federal Housing Administration (“FHA”) and U.S. Department of Agriculture (“USDA”) mortgages among servicemembers grew more slowly.
  • During 2006 and 2007, servicemembers with nonprime credit scores experienced early delinquencies (a mortgage 60 days or more delinquent within a year of origination) on VA mortgages at a rate between 5% and 7%, while collectively all nonprime FHA and USDA mortgages (for both servicemembers and non-servicemembers) experienced early delinquencies reaching 13%.  After 2009, early delinquencies among nonprime VA mortgages originated in 2016 dropped to just above 3%.  Conversely, conventional mortgages dropped below 2% and FHA and USDA mortgages dropped to 5% (for both servicemembers and non-servicemembers).
  • Delinquency rates for active duty servicemembers with nonprime credit scores were found to be lower than their veteran counterparts.  No such distinction in delinquency rates existed between active duty and veterans when the servicemembers had prime credit scores.

Troutman Sanders will continue to track trends in the mortgage industry as they are published by the CFPB.

On February 25, the Federal Trade Commission and the Consumer Financial Protection Bureau reauthorized their Memorandum of Understanding, or “MOU.”

The MOU, which governs the FTC’s and CFPB’s joint operations, focuses on five key areas of cooperation:

  • Joint law enforcement efforts – The agreement requires one agency to give notice to the other prior to commencing an investigation. Both agencies are required to give the other details about the proceedings they are initiating, including the court in which the proceeding is being brought, the alleged facts surrounding the case, and the agency’s requested relief. Importantly, the agreement also allows either agency to intervene in any action commenced by the other agency, as long as the intervening agency shares jurisdiction.
  • Joint resolution efforts – One agency must also notify the other prior to proposing or entering into any consent decree or settlement with an MOU Covered Person. Each agency must also notify the other prior to issuing no-action letters, warning letters, or closing letters.
  • Joint rulemaking efforts – The agencies must consult and notify one another prior to issuing proposed rules or agency guidance under statutes such as the Omnibus Appropriations Act of 2009, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and UDAAP.
  • Supervisory Information and Examination Schedules – The CFPB must provide, and the two agencies must confer as to, the CFPB’s plans to examine MOU Covered Persons, and the CFPB must provide the FTC with Confidential Supervisory Information relating to MOU-covered persons subject to FTC jurisdiction, upon request from the FTC.
  • Consumer Complaints – Under the agreement, the agencies are to direct consumers to the agency best suited to resolve their complaints and are to make consumer complaints available to one another.

According to the FTC, the MOU is an agreement for “ongoing coordination between the two agencies under the terms of the Consumer Financial Protection Act,” aiming to avoid duplication of law enforcement and rulemaking efforts between the FTC and CFPB.  The full MOU is available here

On February 20, the Consumer Financial Protection Bureau released a compliance guide for small entities that summarizes payment-related provisions of the Payday Lending Rule.

The Payday Lending Rule governs payday loans, vehicle tile loans, and certain high-cost installment loans.  The Guide focuses on the payment provisions of the Payday Lending rule, found in Subpart C of the Rule.  It also discusses general coverage provisions, including lenders and servicers subject to its mandates, prohibited payment transfer attempts, and disclosure of payment transfer attempts, which are found in Subpart A of the Rule.  Lastly, the Guide focuses on the record retention and compliance program requirements, found in Subpart D of the Rule.

The Guide should be reviewed in conjunction with the Rule as the Guide does not include interpretations issued or released after February 2019.

A copy of the Guide can be found here.

Troutman Sanders will continue to monitor and report on developments regarding the CFPB.